The year witnessed continued slump in global crude oil and commodity prices, compounded by the sluggish global economic growth and geopolitical instability. Your trust in your Company irrespective of the prevalent mood of the markets has provided us a lot of encouragement and reassurance. We have been committed and shall remain so for managing the risks of the business and planning future growth of your Company to ensure maximum value creation for all our stakeholders.

I, on behalf of the Board of Directors of Oil and Natural Gas Corporation Limited and over 33,000 dedicated energy soldiers, present to you ONGC’s Annual Report for the financial year 2015-16. Despite the upstream oil and gas sector had been under tremendous economic stress in the last one year on account of the low crude oil and natural gas prices, ONGC and its group companies, have done well in FY’16 in terms of their operational and financial performance.

Our performance during such difficult times testifies the strength of our core domestic oil and gas portfolio as well as the efficacy of our investments towards asset creation.

In FY''16, we made 17 hydrocarbon discoveries with an overall 2P Reserve Replacement Ratio (RRR) of 1.51, making it the tenth consecutive year that the Company has recorded an RRR in excess of ''One''. This reflects our strong exploratory record over the years. With a total reserve accretion of 65.58 Million Tonnes Oil equivalent in FY''16. our reserve accretion profile has been creditable. At the same time, there has been a strong drive towards converting the booked resources in the reservoir into barrels on the surface.

Our efforts on the production front also has been satisfying in FY’16. Standalone domestic output from ONGC-operated fields in the year stood at 22.36 MMT, compared to 22.26 MMT in the preceding fiscal. The increment, though marginal, is meaningful as it defies the trend of falling productions for 7 years until FY’14. This is the second consecutive year that our domestic portfolio has registered a rise in output inspire of the fact that ONGC''s major producing fields are in maturity stage which necessitates continuous investment to manage reservoir health and arrest the natural decline.

The prolific Western Offshore continues to be the mainstay of our base production portfolio, and our major capital commitments in the past few years have been towards offshore projects. Incremental 011 from production enhancement projects in our legacy assets accounted for close to 30 percent of the company''s crude output in FY’16. We have been successful in recovering over 100 MMT of oil from such IOR initiatives and close to another 100 MMT is further envisaged. However, the costs incurred on every incremental barrel continues to challenge their long-term commercial viability, especially when prices are low. Though domestic crude production has been satisfying, our natural gas production recorded another year of decline in FY’16 at 21.18 BCM relative to 22.02 BCM in FY’15.

As you are aware, ONGC’s oil & gas production accounts for 70 percent of country''s hydrocarbon output. However, keeping in view India’s substantial domestic demand, we understand the urgent imperative to boost domestic supplies. Over the last couple of years, we have stepped up our efforts in this area and new fields which have been put on production in recent past have contributed around 12 percent of the company''s O OEG production. As many as five development projects valuing about Rs,24,800 Crore were completed during FY''16, which through their lifecycles will contribute over 60 MMtoe of new oil and gas supplies. As many as seven projects valuing about Rs,48,000 Crore were approved during the year. Cumulatively, these will translate to additional oil and gas of over 97 MMtoe.

Most significant among these approved projects is the development of fields under Cluster 2 of our deepwater block KG-DWN-98/2 in Eastern offshore which was approved by the Board with a budget of over Rs,34,000 Crore. This is the highest-ever investment in a single project till date in ONGC''s history. Once operational, this project will not only significantly bolster the country’s energy security but also have a compounding effect in terms of Indian Exchequer, employment generation, technological breakthrough and opening a new avenue to Deep water production in Indian waters. Gas production from this project is expected to commence in 2019, whereas the first oil production is expected a year later. The project envisages total production of 23.526 MMT of crude oil and 50.706 BCM of natural gas during the project life from 35 wells in the water depth of 400-1300 metres. The peak daily production from the project in expected to be 16.30 million cubic meters of gas and 77,300 barrels of oil.

Investment decisions have also been taken by ONGC Board for development of Bokaro CBM Block (BK-CBM-2001/l) at a total Project cost of Rs,823 Crore. ONGC’s share in this project would be Rs,658.62 Crore (80% PI with operatorship). This project envisages Coal Bed Methane gas production of 4.098 BCM in 20 years with a peak of 0.9 MMSCMD and a plateau production of 0.75 MMSCMD. The project includes drilling of 141 wells with multilayer Hydro-Fracturing and installation of three production facilities. Production from this project is expected to commence during 2017-'' 18.

Gas Hydrates is described by many as potentially next ‘game-changer’ in the sector. ONGC has taken a lead role in the National Gas Hydrates Program (NGHP). 42 gas hydrate wells have been drilled as part of NGHP 02 which has been completed on 28 July 2015. This expedition has been quite successful. Two areas in KG deep offshore (Block 98/5 and D6/D9) have proved to be world class gas hydrate accumulation for further production testing. NGHP-03 is being planned further.

The fall in crude prices has not largely impacted our realization on our domestic barrels but it has affected our earnings from JV operations and Value Added Products (VAP) sale. Our gross revenues in FY’16 was Rs,78,569 Crore, compared to Rs,83,094 Crore in FY’15. Our combined group turnover for FY’16 was Rs,142,927 Crore. Standalone Profit-Af ter-Tax (PAT) was Rs,16,004 Crore (down 9.8 percent) while the Group PAT was Rs,14,124 Crore (down 23 percent). The government’s supportive view on subsidy-sharing by upstream operators in a period of deflated crude prices eased the burden of under recoveries in FY’16, resulting in a higher net price realization for our domestic crude sales at $47.14/bbl against $44.87/bbl in FY’15.

ONGC continues to honour the tradition of healthy dividend distribution among its valued shareholders, the most important stakeholders of this organization. In FY‘16, with a total payout of Rs,8,752 Crore, inclusive of dividend distribution tax, we maintained a payout ratio of 55 percent, same as in FY’15. Our constant focus in our core business, in combination with our future plans for growth, positions us to create enough room for meaningful value creation irrespective of market trends.

On the international front, ONGC Videsh Limited, our 100% subsidiary had to endure the direct fallout of the slump in crude prices, and recorded negative earnings in FY''16. However, our international business remains firm as oil and gas output from our international business increased to 8.92 MMtoe in FY’16 against 8.87 MMtoe in FY''15. At the moment, our Syrian and South Sudanese Assets continue to remain affected due to internal disturbances. In FY''16, in terms of overseas expansion, we secured a 15 percent stake in Russia''s Vankor field, the country’s second largest oil field, through Vankorneft - a subsidiary of Resent. The daily production from the Vankor field is around 442,000 bpd of crude oil on an average; with ONGC Videsh''s share of daily oil production at about 66000 barrels. This transaction provides an opportunity to ONGC Videsh to enhance its presence in Russia and also has significant strategic importance to India, both in terms of augmentation of India’s Energy Security as well as enhancing India’s stature in the global political and economic arenas. With this acquisition, ONGC Videsh interests span across 17 countries through 37 projects including 14 producing properties.

Your Company has also performed well in downstream refining and petrochemical segments. Our refining subsidiary, Mangalore Refinery and Petrochemicals Ltd. (MRPL), registered its highest ever throughput at 15.53 MMT. The refining unit recorded an impressive GRM of US$ 5.2 per barrel as well as achieved a turnaround in its earnings with a net profit of Rs,1,148 Crore. The company also accomplished almost 100 percent increase in domestic evacuation of its products to 1.61 MMT in FY''16, thereby increasing its market share in domestic market and reducing its dependency on exports. In view of the conducive domestic retail market scenario and positive outlook of consumer demand for petroleum products, MRPL has now initiated steps to commence its retail business by setting up retail outlets. In another important move, MRPL also became the majority shareholder of ONGC Mangalore Petrochemicals Ltd (OMPL) by increasing its stake to 51 percent in order to enhance the synergies of the two businesses.

During the same period, OMPL, the merger of which with MRPL is currently under process, has registered a turnover of Rs,4,189 Crore. Capacity utilization of the units during FY''16, increased to 71 percent from 60 percent in FY''15. ONGC Petro-additions Ltd (OPaL), one of our value-multiplier projects, will also be commissioned shortly as naphtha and polypropylene, principal feedstock’s for the dual-feed cracker unit, has already arrived. At Dahej itself, the world’s first LNG-based C2-C3 plant, which will supply Ethane, Butane and Propane to OpaL, commenced operations on May 31, 2015. Our JV entity in the Power segment, the 726.6 MW OTPC Power Plant in the country''s northeastern state of Tripura, is now fully operational with gas supplies from ONGC fields.

With the recent successful signing of the historic COP-21 Agreement on climate change and mitigation, it is important to understand the diverse implications of energy and all energy-related businesses on the environment. We have always endorsed and practiced a holistic and sustainable approach to doing our business. Today, we have 13 Clean Development Mechanism (CDM) projects registered with United Nations Framework Convention on Climate Change (UNFCCC) which have cumulatively accrued 260,000 Certified Emission Reductions (CERs) to the company’s account. We have also undertaken extensive carbon and water foot-print exercises which have helped us identify areas in our operations that can benefit from focused emission-reduction interventions.

As an integrated energy company, we are also committed to increasing the share of greener forms of alternate energy in our basket. We have already constructed two wind farms - one in Gujarat with a capacity of 51 MW and the other is 102 MW farm, set up in Rajasthan and are constantly on the lookout for similar ventures in this domain. A rapid growth in solar business is being driven by innovative solar niches; ONGC is also exploring options for initiating activities in solar business while keeping our boots planted firmly in the Oil & Gas E&P business.

ONGC’s shareholders would be happy to know that beyond the realization of operational and financial targets, the business template of the company is also guided by a ''Safety First'' and an environmentally-aware approach, as evidenced by our sustainability as well as our CSR initiatives. It ensures that ONGC, besides being committed as a robust business entity, is equally attuned to the realities of an emergent energy landscape. ONGC has a long and cherished tradition of commendable initiatives, institutionalized programmes and practices of Corporate Social Responsibility which have a laudable role in the development of several underdeveloped regions of the country. The company’s CSR programs continue to make meaningful difference in people''s lives, especially around our operational areas. In FY''16, ONGC spent Rs,421 Crore through several large scale key projects and new projects initiated as a part of its CSR initiatives.

Values and principles will remain at the core of ONGC’s DNA. Our annual numbers represent much more than operational or financial milestones. They also represent the company''s commitment and investment in the many relationships that it has forged over the years with its many different stakeholders.

Here, I would like to thank the Government of India, in general and our administrative Ministry- Ministry of Petroleum and Natural Gas, for its constant support and encouragement to us in taking bold steps in realizing our mandate. We are aware of the country''s expectations from us. Our pursuits in the domain of energy, in the larger interests of the country''s requirements, have definitely benefitted from the vision, policies and several path breaking reforms taken by the Government in Oil & Gas sector.

ONGC would be completing its sixty remarkable years as the country’s flagship oil and gas company. In fast few weeks as much as at ONGC, I am sure it is an equally relevant event for all our valued shareholders who have given to us immense confidence and belief in our endeavors over the years by choosing to remain invested in us. Your continued support is an important barometer of ONGC’s success and its growth outlook. With the successful closure of another year with FY’16,

I assure you that the Company will continue doing the best and make more energy supplies available to the country while ensuring strong value creation for all of you.

Just avoid making investment in the stock of ONGC or book its stock at any rally as the balance sheet of the company, which at present is already stretched will have a negative bearing from the merger talk that is taking place with the OMCs,

More from markets

Date Sources:Live BSE and NSE Quotes Service: TickerPlant | Corporate Data, F&O Data & Historical price volume data: Dion Global Solutions Ltd.BSE Quotes and Sensex are real-time and licensed from the Bombay Stock Exchange. NSE Quotes and Nifty are also real time and licenced from National Stock Exchange. All times stamps are reflecting IST (Indian Standard Time).By using this site, you agree to the Terms of Service and Privacy Policy.